MNI: China Gold Demand Robust, Despite Volatility

Demand for Chinese gold ETFs is expected to continue robust growth in 2026 despite official concern over the exposure of retail investors to volatility and speculation, local analysts told MNI.

Geopolitical risk, persistent domestic growth challenges and continued weakness in the property sector are likely to keep Chinese investors drawn to the metal’s safe-haven appeal following a record-breaking 2025, said Ray Jia, Research Head APAC (ex-India) and Deputy Head of Trade Engagement, China, at the World Gold Council.

While gold jewellery demand fell 24% in 2025 to its lowest level since 2009, assets under management in Chinese gold ETFs surged 243% year on year to CNY242 billion, leading to holdings rising 116% to 248 tonnes – both the highest in history. This divergence between jewellery consumption and bullion investment, including further growth in ETFs, is likely to persist this year, as elevated gold prices exert contrasting pressures on the two segments, Jia said.

In addition, knock-on effects from changes to value-added tax policy may continue to redirect jewellery buyers with investment motives toward bullion products, Jia continued.

Chinese regulations require gold ETFs to maintain a minimum 90% allocation to SGE-listed spot gold contracts, with the exchange responsible for the custody and settlement of the underlying physical metal through its designated vault network within mainland China and Hong Kong.

An expected accommodative monetary policy stance should also lower the opportunity cost of holding gold, further supporting investment demand, Jia noted, adding that retail gold investment in the country remains particularly sensitive to ongoing purchases by the People’s Bank of China.

The PBOC added 27 tonnes of gold in 2025, lifting official holdings to 2,306 tonnes, equivalent to 8.5% of total reserves.

VOLATILITY

While the medium- to long-term outlook remains constructive, recent sharp price swings highlight fragile market structure, a Guoxin Futures gold analyst said, after the main Shanghai gold contract fell 20.9% to CNY1,011 on Feb 2 before rebounding 7.4% the following day.

Gold's recovery was driven primarily by an improvement in market sentiment and capital flows rather than a change in fundamentals, the analyst said, noting futures prices rallied strongly while related equities lagged – signalling a widening divergence between short-term trading activity and longer-term investment behaviour.

“Conflicting signals from different officials within the U.S. Federal Reserve on rate cuts, as well as sudden policy shifts by U.S. President [Donald] Trump, underscore the risks ahead,” the analyst added.

INTERVENTION

Major banks have already introduced measures including higher investment thresholds, adjusted margin requirements and revised circuit-breaker rules for gold investment products. At the exchange level, the Shanghai Futures Exchange has raised margin requirements and widened daily price limits for gold futures.

With volatility rising, implementing risk-control measures is necessary to prevent excessive overheating, Jia said, adding that such steps would support the market’s long-term development.